1) Homestead Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are $54,000, and variable costs are $29 per unit. The present selling price is $42 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 18,000 units of the product at $32 each. Dawkins Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Homestead Jeans Co.

a) Will there be more fixed costs if the firm takes on the extra order?( Remember the factory is operating at only about 70% of full capacity. The firm has to pay the same for the fixed costs connected to being able to make 65,000 units as they do for making only 45,000 units) Yes or No _______

b) What is the contribution margin per unit on the proposal that has been made? ____

c) What is the lowest selling price that would still generate a positive contribution margin per unit and allow the firm to improve their financial position? ______

2) Portable Power Company expects to operate at 80% of productive capacity during July. The total manufacturing costs for July for the production of 25,000 batteries are budgeted as follows:

Direct materials: $162,500

Direct labor: 70,000

Variable factory overhead 30,000

Fixed Factory overhead 112,500

Total manufacturing costs 375,000

The company has an opportunity to submit a bid for 2,500 batteries to be delivered by July 31 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during July or increase the selling or administrative expenses. What is the unit cost below which Portable Power Company should not go in bidding on the government contract?

a) What is the variable product cost per unit of manufacturing one battery?

b) What contribution margin per unit would a bid quote of $10.50 per battery generate?__

c) What is lowest bid quote per battery that can be made that will still not make the firm worse off financially?____